Friendshoring: What is it And Can it Solve Our Supply Problems?
Initially, there was offshoring, which meant moving a company’s operations to another country. The next trend was “reshoring,” or moving production back to its original homeland. Now the keyword is “friendshoring” — a trend promoted by US officials in their latest effort to address the massive global supply chain disruption.
So what exactly is friendshoring, and will it address supply chain issues?
The Essence of Friendshoring
To begin, what exactly is friendshoring? Friendshoring, also known as “allyshoring,” is when corporations relocate their business activities, such as back-office, manufacturing, or research and development, to “friendly” countries. To put it simply, these countries all believe in the same things. Businesses are unfamiliar with this approach, which represents a sharp departure from the long-held principles of a globalized economy. So, what is causing the shift? Many recent volatile events have occurred, ranging from Trump’s trade battles to the Covid issue, Russia’s struggle with Ukraine, and, most recently, frictions between China and Taiwan, a major trading route.
Many western corporations embraced outsourcing to reduce costs by relocating production to nations with inexpensive labor. After entering the World Trade Organization (WTO) in 2001, the People’s Republic of China quickly became a leading destination for industrial offshore. One main area of interest has been the expansion of software and information system companies worldwide. India emerged as one of the most attractive offshore locations as a result of its advancements in telecommunications, which made trade in services possible.
How Does The Supply Chain Horizon Look?
At the moment, US tariffs and the COVID interruptions to the supply chain have prompted enterprises to return production to the United States, often known as onshoring or reshoring. The “Revitalize US Manufacturing and Secure Critical Supply Chains” plan proposed by Senators Biden and Harris in 2022 recognizes the United States’ limitations in this regard. Friendshoring encourages continuous cooperation with collaborators and allies to foster shared supply chain resilience and assure the continued production of essential goods. Treasury Secretary Janet Yellen, asserts that prioritizing trusted countries and allies will result in secure market expansion with reduced economic risk. Also, the move is meant to protect supply chains by making them less reliant on countries with bad governments for minerals and Russia for things like gas.
And if things weren’t already tense enough, US House Speaker Nancy Pelosi’s trip to Taiwan made China’s threat to Taiwan even worse. Since the United States is dependent on Taiwan for the supply of semiconductors, Vice President Joe Biden wasted no time traveling to South Korea, specifically to a Samsung Electronics computer chip factory. It is possible that western companies would move jobs and manufacture away from China to “friendly” nations such as Vietnam, Malaysia, and Indonesia as a result of ongoing national security and human rights concerns.
Conclusion
Ultimately, economists say friendshoring comes at a cost. The “deglobalization” process of which friendshoring is a part could lead to greater supply shocks, higher prices, and slower growth in the near and long term.
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